BSP: No pressure to act in tandem with US Fed

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) sees no need to move in tandem with the US Federal Reserve, which has raised interest rates for the first time since 2018 to fight inflation.

BSP Governor Benjamin Diokno said in his weekly online press briefing that the central bank’s Monetary Board would discuss the development during its second rate-setting meeting for the year scheduled on March 24.

“We do not necessarily have to move in pace with the monetary policy adjustments of the US Fed,” Diokno said.

During next week’s meeting, Diokno said the Monetary Board would review its policy outlook and monetary policy stance.

“I would like to reiterate that the BSP calibrates its monetary policy settings in response to external developments only to the extent that they influence the outlook on growth and inflation,” Diokno said.

According to the BSP chief, the regulator has various tools, such as the flexible exchange rate system, the strong external buffers, macro prudential policy framework as well as liquidity enhancing and management tools to deal with any short-term volatility that may arise from risk factors related to potential tightening of financial conditions.

“Nonetheless, our future monetary policy decisions will continue to be data-driven and anchored on evolving domestic developments to avoid unintended consequences associated with productive easy monetary conditions,” Diokno said.

The US central bank raised interest rates by a quarter of a percentage point yesterday and sees more rate hikes for this year and next year.

Based on its last assessment on Feb. 17, the Monetary Board raised its inflation forecasts to 3.7 percent instead of 3.4 percent this year, and to 3.3 percent instead of 3.2 percent next year, due to rising global oil prices and commodity prices.

With Russia’s invasion of Ukraine, the BSP says inflation could breach the two to four percent target, accelerating to a range of 4.4 to 4.7 percent if the price of Dubai crude rises to about $120 to $140 per barrel.

Diokno said the BSP is closely monitoring for possible second-round effects arising from higher oil prices.

“The BSP remains on the lookout against inflationary pressures that could disanchor inflation expectations. Given that inflation is projected to move close to the upper end of the government’s two to four percent target range in 2022, we remain vigilant of potential upside risks to the inflation outlook, particularly higher global food prices, the continued shortage in domestic pork supply, and higher fish prices,” Diokno said.

Monetary authorities stand ready to respond to any potential risks to the inflation outlook in pursuit of its price and financial stability mandates.

Diokno said targeted government interventions have helped ease supply-side pressures on agriculture prices in the Philippines.

Recent data on the average retail prices of agricultural commodities showed generally steady trends, particularly for rice, corn, and chicken.

“While we observed few occasions of upticks emanating from supply constraints and rising producer costs, we note that the impact of supply disruptions brought about by natural calamities were short-lived and were mitigated by government measures, such as early harvest of crops and close price monitoring conducted by concerned agencies,” Diokno said.

The implementation of Executive Orders 133 and 134 (or the reduced tariff on pork imports) helped temper pork prices amid the continued pork supply shortage, and contributed to the steady decline in pork price inflation.

Notwithstanding, the adverse impact of the African swine fever (ASF) on the supply of meat products has kept retail prices elevated.

The BSP does not typically react immediately to supply-side inflationary pressures as these are mostly transitory. Supply-driven price pressures on basic commodities are usually best addressed by non-monetary policy interventions of the national government.

Some of these non-monetary policy interventions seek to increase the supply of basic commodities, including meat, rice, and corn, as well as vegetables that are highly susceptible to the impact of adverse weather conditions and the presence of animal disease outbreaks, such as the ASF.

Enabling a temporary increase in imports augments domestic supply and helps stabilize prices.